Capricorn Energy: Beyond the Barrel

Thanks to improved fiscal terms, previously uneconomic assets have moved into active development. Capricorn completed a 22-well development programme during 2025, with the majority focused on the BED area, driving exit production above guidance. With liquids making up 42-43% of production and a low OPEX of $5.1/boe, incremental volumes now convert more directly into cash flow. This execution has reset the production baseline heading into 2026. The company has also brought shut-in wells back online and progressed near-field tie-backs, accelerating value without requiring new infrastructure.

Capricorn has reshaped itself into a lean, focused operator with a strengthened balance sheet. At year-end 2025, it held $96m in cash and ~$103m of net cash, following full repayment of its senior debt facility. This gives flexibility to invest, pursue selective M&A, or return capital. The Waldorf outcome has been largely crystallised, with a modest cash settlement expected. Management continues to screen UK and MENA opportunities under strict return thresholds, without pressure to deploy capital. Egyptian investment remains paced to collections, keeping growth internally funded and preserving resilience into 2026.

Capricorn has secured a government-approved agreement that merges eight Egyptian concessions into a single, simplified contract. The new terms improve cost recovery and profit share while extending contract life to 2045. The agreement has been operational since 1 July 2025, with EGPC Board approval already securing the economic benefits. Parliamentary ratification, expected in early 2026, is the final step to formalise reserve recognition. This supports the potential reclassification of up to 20 mmboe of 2C resources as 2P reserves, underpinning multi-year drilling and production growth. The single-concession structure also reduces complexity and allows capital to be deployed more efficiently across the portfolio.

• NUMB tie-in and development progress: Following encouraging drilling results delivered in 2025, NUMB is expected to be tied in during early 2026. This represents a low-risk production uplift and validates follow-up drilling plans, shifting the focus from discovery to execution.

• Receivables normalisation: Capricorn received $156m from EGPC since mid-2025, reducing receivables to ~$84m – the lowest level since 2022. Continued payment reliability would further strengthen liquidity confidence and reduce perceived country risk.

• Parliamentary ratification of concession: Parliamentary approval, expected in early 2026, is the final formal step for the integrated concession. The agreement has been operational since July 2025, with economics already in effect. Ratification supports reserve reclassification and an updated CPR.

• Reserve booking and CPR update: A positive ratification outcome would unlock up to 20 mmboe of 2C resources into 2P reserves and help underpin future capex and drilling plans. It also lays the foundation for a valuation uplift.

• Production uplift and reserve growth: Continued drilling success in BED and surrounding areas under the new terms could materially boost production and prove up extensions, expanding the reserve base over multiple years.

• Strategic M&A delivery: Accretive deals in the UK or MENA region, if executed with capital discipline, could diversify the portfolio and unlock new growth avenues. Investors are watching closely for tangible delivery on this front.

Capricorn has made material progress on its receivables position, with $156m collected from EGPC since June 2025, reducing the balance to ~$84m, the lowest since 2022. While Egypt's macro conditions still pose a structural risk, consistent payments over H2 2025, including a $43m transfer in December, demonstrate improving reliability. The company continues to align investment with in-country collections, further mitigating exposure.

Capricorn is undertaking an aggressive 22-well drilling programme under new fiscal terms in 2025, with the majority loaded into H2. This compressed timeline heightens the risk of execution delays, cost overruns, or underperforming wells. Moreover, the success of NUMB and SEH test wells remains uncertain. A miss on these fronts could diminish investor confidence, slow future reserve growth, and challenge the pace of cash flow ramp-up.

Capricorn’s investment case depends heavily on the integrated concession agreement. While EGPC has approved the new terms, the final step is Egyptian parliamentary ratification. While parliamentary ratification is still required, EGPC Board approval has already unlocked the commercial terms of the deal. The agreement is operationally effective from 1 July 2025. Delays here would slow the formal reclassification of reserves and the CPR update but will not affect near-term field development or cash flow. Any prolonged delay may also erode investor confidence and push back the CPR update tied to the new terms.